After falling steadily for a month, demand for mortgages to purchase a home rose slightly last week.

Coupled with a continued increase in refinancing, total mortgage application volume rose 2.8% for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Mortgage applications to purchase a home rose 2% for the week but were still 18% lower than a year ago. Buyers are contending with high prices and limited supply, although more residences are slowly coming onto the market. The type of loan now seeing higher demand is telling.

“The higher level of purchase activity last week was driven by more government purchase applications, including a 3.3% increase in FHA loans,” said Joel Kan, an MBA economist. “With low for-sale inventory keeping home price appreciation in many markets at record highs, the jump in FHA purchase applications is potentially a sign that more first-time buyers are finding purchase options despite the high prices.”

A slight increase in mortgage rates did not deter borrowers, especially since rates are still historically low. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 2.99% from 2.97%, with points decreasing to 0.30 from 0.33 (including the origination fee) for loans with a 20% down payment.

Applications to refinance a home loan increased 3% for the week but were 8% lower than one year ago. The refinance share of mortgage activity increased to 68% of total applications from 67.6% the previous week.

“Homeowners continue to respond to lower rates, with refinance activity climbing to the highest level since February 2021,” Kan said.